The Staggers

The New Statesman’s rolling politics blog

Memo to Duncan Smith: unlike the UK, the US has recovered from recession

The Work and Pensions Secretary is wrong to criticise the performance of the US economy.

By George Eaton Published 05 November 2012 14:16

Barack Obama speaks during a campaign rally in Cincinnati, Ohio. Photograph: Getty Images.

It took some chutzpah for Mitt Romney supporter Iain Duncan Smith to declare on BBC Radio 5 Live last night that it was "very worrying" that the United States hadn't "bounced back from this recession". Unlike the UK, the US has more than recovered from the downturn of 2008-09.

As the graph below shows, while the US has grown consistently since leaving recession in the third quarter of 2009 (with the exception of Q1 2011 when output was flat), Britain has only recently returned to growth after three quarters of contraction. Indeed, by one definition at least, we're still in recession. Unlike the US economy, which is now 2.3 per cent above its pre-recession peak, the UK economy is still 3.1 per cent smaller than it was in the first quarter of 2008. Over the last year, while UK output has remained flat, the US has grown by 2.3 per cent.

The divergence in performance is due in no small part to the decision of the US government to pursue stimulus and the decision of the UK to pursue austerity. Barack Obama's $787bn fiscal stimulus, a mixture of tax cuts, infrastructure projects and increased unemployment benefits, is estimated to have increased real US GDP by around 3.4 per cent and to have created or saved 2.7 million jobs (see this study by Mark Zandi, a former economic adviser to John McCain, and Alan Blinder, a former vice-chairman of the Federal Reserve). By contrast, the coalition's (non-expansionary) fiscal contraction is thought to have reduced GDP by 4.3 per cent this year.

Duncan Smith is welcome to invite comparison of the two economies (not least because it aids the case against the government's policies), but he should know that there can only be one winner.

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Tags: Barack Obama Iain Duncan Smith Conservatives Economy

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15 comments

Tue, 2012-11-06 08:19 — Stuart Eels (not verified)

Maybe IDS was listening to the same R5 show that I was with it's tent city outside one of their old industrial cities, where working people like you and me have had to live for years when their repossessed homes rot away. We moan that we have to turn the heating down, they haven't got any after four years of Barack Obama.

Having said that I'm hoping he wins, we don't need another world war at the moment.

Tue, 2012-11-06 04:24 — gotta be kidding (not verified)

I came over to this site for the first time through a link that outlined how Romney, if elected, would revoke a woman's right to get an abortion, and then have her arrested if she went overseas. This is of course ridiculous (the President can't override Supreme Court decisions, and even if he could, arresting someone for committing a crime on foreign soil is generally very difficult) and so I suggested that this site may be the British version of the Onion. Now I read this, and I have to say I'm flabbergasted.

We've recovered from the recession, because you have a *****CHART*****!?!?!?!? OMFG you're a moron, and this is a truly pathetic argument. Yes, President Obama wasted almost $800 billion on his stimulus package, much of which went into the pockets of political cronies who helped him get elected in the first place. One CHART you haven't shown is the Labor Participation Rate, which has dropped !0% since President Obama entered office. This is the percentage of people who are of an age where they could have jobs, who actually do, or try to. When someone tells you that the Unemployment Rate has dropped, ask them about Labor Participation...it's what most people *think* the Unemployment Rate is. It's hovering near 50% these days. Eventually no one will have a job, but since no one will be looking, either, the Unemployment Rate will be 0%.

You should come to my neighborhood, and drive around and see al the "Going Out of Business" Sales, and all the empty storefronts. It'd be interesting to have you explain to me how that signifies an economic recovery.

Oh, and I live in California, where the political leadership thinks President Obama is maybe too conservative. They never met a tax increase they didn't like, the regulate anything and everything past all reason, and we have vast phalanxes of bureaucrats to muck up everything anyone in the provate sector tries to do. We're also in debt up to our eyeballs, businesses are fleeing the state like rats from a sinking ship, and our population of "undocumented workers" (read "illegal immigrants" if you want to be politically incorrect) continues to grow, commits horrific crimes, and in some cases have actual advantages over the citizenry...

Tue, 2012-11-06 16:48 — Sid Snot (not verified)

Isn't a large part of the problem for California the unwillingness of its wealthier citizens to pay enough taxes to cover the demands on the state (which the private sector can't or won't cover because it won't make a profit on it)? Certainly doesn't look like the future any more.

Wed, 2012-11-07 05:06 — gotta be kidding (not verified)

You guys obviously get your news from someone whose view of American politics is so left-wing it's ridiculous. Whenever there's a business conference in California, where executives meet to discuss building new businesses, getting zoning laws changed to allow some new sort of manufacturing facility to go in somewhere, etc., whenever they have one of these conferences takes place, they always have a program, that tells you when the seminars are, etc. Advertising is always sold in this program, and half of the advertising is full-page ads from surrounding states, Nevada, Arizona, Colorado, Oregon, etc., extolling their friendlier business climates and lower personal income tax rates, compared with California's. We have the highest personal income tax in the nation (especially the top tax bracket) and will have the highest sales tax, if one of our propositions passes tonight. Our property taxes, in terms of the money that's gathered (as opposed to the percentage of property value that we tax) has to be among the leaders in the nation. But our expenditures are also astronomical--we have 15,000 pensioners each collecting more than $100,000/year in pensions, with thousands and thousands more on the way, and no end in sight at all. The leader is a guy who collects slightly over half a million a year for having been the city manager (a sort of unelected mayor) of a small city that had less than 100 residents when he ran the place. One of our universities, in the middle of a tuition increase crisis that has everyone wringing their hands in anguish, created a new post (vice chancellor for diversity) and hired a woman at $250,000/year, with a housing allowance, moving allowance, and wonderful benefits to boot.

Essentially, the problem isn't that our wealthiest citizens don't pay high enough taxes. Most of the wealthy citizens who remain are celebrities (actors, musicians, athletes and the like) and lawyers, who are all of the hyper-liberal. It's that our government is so large and unmanageable that we've become Greece without the Parthenon. Eventually they're going to have to tax the rest of the country to pay for our excesses, and I shudder to think what happens when they try and tax the Texans to pay for bureaucracy in California...

Tue, 2012-11-06 00:15 — Jimbo Lovejoy (not verified)

George,
You point to a GDP graph as if that singular makes a case for your argument.
Why is that?
It has been shown (time and again) that stimulus provides a multiplier of near zero when used in already highly indebted scenarios. US Govt Debt is currently running at 101% of GDP & in about 7 weeks time the US economy will have about 3.7% of GDP removed thanks to the £600 billion of new taxes applied when the Bush tax cuts end.

How do you imagine all this will affect the US economy George? Eventually you have to pay the piper.

Tue, 2012-11-06 16:44 — Sid Snot (not verified)

Who is the piper?

Mon, 2012-11-05 23:09 — Benjamin Rae (not verified)

Nearly every comment made by this man puts shivers up my spine. How could a man so off in his analysis of major issues be given such an important role? He's not a normal unpleasant Tory. He's in the mould of these extreme Republicans in his twisted outlook.
By all accounts his Universal credit project is a giant titanic head for an iceberg. He's been getting credit for something that is costing a fortune and is heading for disaster.

Mon, 2012-11-05 23:06 — Paul J (not verified)

The f*cking nerve of the man.

Mon, 2012-11-05 21:00 — Arturo Bandini (not verified)

As we've learned throughout this US Election campaign, if the facts don't suit the Right they just make up their own.

Shameless.

Mon, 2012-11-05 19:44 — Barrie J (not verified)

In 2003 the Conservative Party passed a vote of no confidence in Iain Duncan Smith.
On the 7th May 2015 I imagine the British electorate will do the same to his Party.